Four big U.S. banks on Monday said they would sell $6.55 billion of common stock and repay funds from the government's bank bailout program, after federal stress tests showed they can weather a deep recession without new capital.

U.S. Bancorp plans to sell $2.5 billion of stock, and sold $1 billion of five-year notes. Capital One Financial Corp sold $1.55 billion of stock, BB&T Corp said it will sell $1.5 billion, and Bank of New York Mellon Corp said it will sell $1 billion.

BB&T also cut its quarterly dividend 68 percent to 15 cents per share to save $725 million a year, after 37 straight years of higher payouts. Chief Executive Kelly King in an interview said the decision marks the worst day in my 37-year career.

Separately, KeyCorp said it would sell $750 million of stock to help plug what regulators called a $1.8 billion capital shortfall. KeyCorp said it may take other actions, including converting other securities to common stock.

The offerings were announced three days after Wells Fargo & Co and Morgan Stanley sold a combined $12.6 billion of stock. Morgan Stanley also sold $4 billion of debt.

These banks were among 19 lenders to undergo government tests of their ability to weather a deep economic downturn. Regulators last week ordered 10 lenders, including Wells Fargo and Morgan Stanley, to raise a combined $74.6 billion.

Banks are raising capital after improved investor sentiment caused shares in the sector to more than double from their lows in early March, despite worsening credit conditions in housing, commercial loans and credit cards.

They're trying to get while the getting is good, said Walter Todd, who helps invest $650 million at Greenwood Capital Associates LLC in Greenwood, South Carolina. Fundamentals of banks appear not as bad they were, but they are still not good given the underlying conditions in the economy.

U.S. Bancorp is based in Minneapolis; Capital One in McLean, Virginia; BB&T in Winston-Salem, North Carolina; Bank of New York Mellon in New York, and KeyCorp in Cleveland.

In Monday trading, shares of U.S. Bancorp fell 9.9 percent to $18.50; Capital One fell 13.5 percent to $27.10; BB&T fell 7.6 percent to $24.34; Bank of New York Mellon fell 8.1 percent to $29.55, and KeyCorp fell 9.9 percent to $6.28.

Bank of New York Mellon announced its offering after markets closed. The 24-member KBW Bank Index <.BKX>, which includes all five banks, fell 7.1 percent. Capital One's close was below the $27.75 per share price of its stock offering.

BB&T CEO CRITICIZES TARP

U.S. Bancorp took $6.6 billion from the government's Troubled Asset Relief Program, while Capital One took $3.55 billion, BB&T $3.1 billion and KeyCorp $2.5 billion.

Hundreds of lenders took money from TARP, which was designed to spur lending and improve the economy.

Yet many now view TARP as an albatross that imposes too many restrictions, including on executive pay, and suggests that recipients are desperate for capital.

Rational, objective lending is one of the most important purposes of the banking system, and when you inject Congress and the administration into it, it effectively politicizes the process, which is not healthy, BB&T's King said.

King also said the stress tests unnecessarily created huge levels of anxiety and concern among investors. Regulators have always had the ability to assess the capital of institutions, and require more if they chose, he said.

At least one dozen lenders have repaid or gotten permission to repay TARP, and Goldman Sachs Group Inc and JPMorgan Chase & Co have said they want to do so as well.

Goldman Sachs & Co and Morgan Stanley are arranging the offerings for U.S. Bancorp and Bank of New York Mellon. Barclays Capital arranged the Capital One offering. Goldman Sachs, JPMorgan and Morgan Stanley are arranging the BB&T offering. Morgan Stanley is arranging the KeyCorp offering.

(Reporting by Jonathan Stempel; editing by John Wallace, Brian Moss and Bernard Orr)

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